This report analyzes management accounting concepts and practices, using Excite Entertainment Ltd. as a case study. It explores different accounting systems, reporting methods, and planning tools, and provides insights into how management accounting can be used to address financial challenges.
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Management Accounting
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Table of Contents INTRODUCTION...........................................................................................................................1 TASK 1............................................................................................................................................1 Section (A). Understanding of management accounting systems...............................................1 Section (B). Methods used for management accounting reporting............................................4 TASK 2............................................................................................................................................6 Calculation of absorption and marginal costing from credible sources......................................6 TASK 3............................................................................................................................................8 Explanation of the advantages and disadvantages of different types planning tools..................8 TASK 4.........................................................................................................................................10 Compare how organisations and adapting management accounting systems to respond the financial issues..........................................................................................................................10 CONCLUSION..............................................................................................................................13 REFERENCES..............................................................................................................................14
INTRODUCTION Management accounting refers to a process of designing management accounts and reports that help in providing correct and timely financial and statistical data to the mangers of the company so that they can take day to day and short term decisions. It can be a type of accounting which help in offering financial and non financial data to the managers so that they can help in the organisational development by taking suitable decision in context of the company (Bobryshev and et. al., 2015). Management accounting play an essential role in the inner or internal management of a firm. This assignment is based on Excite Entertainment Ltd company which is a client of a leading accountancy organisation. This firm operating its business in promotion of concerts, festivals at various locations of UK. In this report will be discussed about different methods that can be used by the company for management accounting reporting. Further will be defined about the planning tools that can be used in management accounting for budgetary control. Apart for it, financial problems will also be explained and income statement of Excite Entertainment Ltd will be defined. TASK 1 Section (A). Understanding of management accounting systems (a) Difference between management accounting and financial accounting Management accounting system- It can be explained as process of monitoring, dividing and analysing the monetary and non monetary data and information to maintain and manage the organisation's functions. Financial accounting system- It refers to a type of accounting system that help in determining the financial information of the organisation so that the management of the company can design the financial statements for its internal and external functions(Gunarathne and Lee, 2015). Comparison between management accounting and financial accounting system BasisManagement AccountingFinancial Accounting Legal requirementThis accounting system is not mandatory to design. There are not any essential or legal need Ineachorganisation,itis requiredandcompulsoryto designitandithasalegal 1
of this accounting system.requirement for the firm. Types of data usedThisaccountingsystemuse bothtypeofdatasuchas monetaryofnonmonetary (Hopper and Bui, 2016). Financialaccountingsystem use only financial information to develop and design different kind of documents. Format of demonstrationManagement accounting does not include any specific format to display the reports. Financialaccountingsystem needs to implement a specific format to provide information of financial statements. Domain of reporting within the firm Thisaccountingsystem monitor all the field of internal managementofthe organisation. Thisaccountingsystem determinebothinternaland external area of the firm. (a)Cost accounting system- It is a type of accounting system which is affiliated with the approximation of the entire cost that generates during the process of products and services offering. It includes various cost like process cost, direct cost, standard cost and others. In Excite Entertainment Ltd., this accounting system can be helpful for calculating the overall cost in the publicity of various types of occasions. The examples of cost accounting systems are as following: Direct cost- It refers to those cost which can be instantly derived to a particular cost centre such as department, process, goods and others. Standard cost-It indicates to a type of cost accounting system which help in the determination of variances among actual and estimated costs. With the help of this accounting system organisations can monitor the level of difference among standard cost and actual cost. This accounting method help the firm in maintaining awareness about the difference of cost. (b)Inventory management system- It is a part of accounting system which consists following of levels of inventory, sales, deliveries, orders and others. In Excite Entertainment Ltd., the management of the company follow this accounting system so that they can negotiate their various media assets and can monitor the demands of buying new appliances regarding events 2
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and festivals(Kaplan and Atkinson, 2015). The concept of this management system can be analysed by FIFO and LIFO methods. FIFO explains that stock which comes first in the store and sold out first. On the other hand, LIFO indicates those stock and inventory which comes in last but sold out first. This method of management accounting system divides the cost of goods which are accessible for sale in form of number of units available for sale. (C) Job costing systems- It refers to the process of gathering the data about the cost which is connected with a particular job(Klychova and et. al., 2015). In Excite Entertainments Ltd., the management of the company can use this method for monitoring the cost which is calculating by the cost of every job which is allotted in various forms and activities. Benefits of management accounting systems There are various management accounting systems and they al, are beneficial and important for the organisations. Some of them are as following which are essential for Excite Entertainment Ltd.: Accounting SystemsBenefits Inventory management systemIt is an important effective management system for the company to monitor the available stock in the warehouse. It is beneficial because it helps in saving the time and minimizing the cost of the firm. In Excite Entertainment Ltd. The management of the company can manage theirmediaapplianceswiththehelpof inventorymanagementsystem.This managementsystemhelpsincheckingthat how many appliances are in process of use at various locations and how many are stored in the stock. Cost Accounting systemItisanimportantandessentialaccounting system which help in calculating entire cost (Nielsen,MitchellandNørreklit,2015).In Excite Entertainment Ltd., the management of 3
the company can gain various advantages and benefitsfromthisaccountingsystemin analysing the overall cost of their promotion and performing in several festivals and events. This accounting system consist various costing system such as standard cost and direct cost etc. standard cost is important for the company because it help in monitoring the variance in actual and standard cost. Whereas direct cost is beneficial because it helps the management to derivedaspecificfield(Nitzl,2016).For instance,inExciteEntertainmentLtd.,the managementofthecompanycalculatesthe cost of £40000 for an event but the actual cost generates of £50000.In this situation, the standard cost help in analysing the variances of £10000 between the actual and estimated cost. Job costing systemThis system is beneficial for calculation of job which is allotted for a specific activity.In Excite Entertainment Ltd., the management of theorganisationcangetbenefitsformthis accounting system through scheming cost of each job connected in any event or festival. Job costing system is beneficial for manufacturing sector. Section (B). Methods used for management accounting reporting Management accounting reports- These accounting reports refers to those reports that are designed by the management of a company with the help of financial and non financial data to take the internal decisions for the company(Otley, 2016). In Excite Entertainment Ltd., the 4
management of the company can use these kind of reports to create and design various types of management accounting reports which are as following: Budget reports- These are those reports that include information about the actual income, impairment & approximated income, financial loss etc. These kind of reports are important and essential to measure the actual execution with the comparison of actual income or financial loss with the budgeted targets. In Excite Entertainment Ltd., the management prepare these kind of reports to analyse their potential performance. Cost managerial accounting reports-These are those reports which include data and information in context of various costs which generate cause of different activities(Quattrone, 2016). In Excite Entertainment Ltd., these kind of reports are essential and beneficial because it helps in providing elaborated information related to cost and how the cost can be control. The management of this company can use these kind of reports to monitor entire cost composing of any event and festival. Performance reports-These reports indicates to those reports that consist data in context of various performance activities of the company. In Excite Entertainment Ltd., these reports are useful for measuring the actual performance of the firm so that they can take suitable decisions for future. In this organisation the managers of the company can use these kinds of reports to measure and motioner the performance of the employees in each situation. Thus, these kind of reports can be designed by Excite Entertainment Ltd. For the proper running of the company in an effective and efficient manner. It is necessary that these report must be prepared by the management of the company in an essential and accurate format with correct information. Because these reports are beneficial for internal as well as external functions of the company such as stakeholder, employees, shareholders etc. With the help of these reports external functions can have information about the performance of the company. Management accounting system and management accounting reporting are integrated within the organisational process Management accounting system and reporting are integrated with in the process of the company. It is because there are various kind of management accounting systems and they are used by the management of the company for finding out the required data for designing the management accounting reports which help in deriving the accounting systems(Renz, 2016). In Excite Entertainment Ltd. there are various accounting systems such as cost accounting, 5
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inventory management and job costing system etc. for getting the proper information about the organisation's performance. TASK 2 Calculation of absorption and marginal costing from credible sources Marginal costing:This method is used to determine marginal cost of the company. While using this method only variable costs are considered and fixed costs are ignored (Schaltegger and Burritt, 2017). Income statement of Excite Entertainment Ltd for month of may according to marginal costing method is as following: ParticularAmount(in£) Sales Less-Variable cost Contribution Less-Selling and manufacturing expenditures Net profit 120000 51000 69000 - 69000 Working note Calculation of sales- 8000*15= 120000 Calculation of variable cost- (Operating stock- Production overhead- Closing stock) (500*6+10000*6-2000*6)= 510000 Absorption costing:It is used to analyze absorption costs for the organization. All the variable and fixed costs are taken in to consideration while calculating profits by this method. IncomestatementsofExciteEntertainmentLtd.Formonthofmayaccordingto Absorption costing method is as following: ParticularAmount(in£) Sales Less-Cost of good sold 120000 85000 6
Gross profit Less-Selling and manufacturing expenditures Net profit 35000 - 35000 Working Note Calculation of sales-8000*15= 120000 Calculation of cost of good sold- (Operating sock-+Production overhead-closing stock) (500*10+10000*10-2000*10= 85000) Management accounting techniques and financial reports Management accounting techniques are beneficial for the framing of financial reports. The report of income statement of Excite Entertainment Ltd is deigned for month of may. Both methods like marginal costing methods and absorption costing methods are beneficial and useful for the preparation and creation of income statement. These both methods of income statement helpful in presenting and defining net profits(Shields, 2015). In both methods sales amount is similar which is£120000. In marginal costing method, the net profit is £69000 but in absorption costing method, the net profit is £35000. The difference between net profit because in the marginal costing method, variable cost is of £51000 whereas in the absorption method cost of good sold is of £85000. Cause of it the net profit is different and rate is also. In the marginal costing method the multiplying rate is of £6(4+2) and in the absorption costing method rate is £10 (40000/10000). Financial reports that correctly apply and interpret the data for various business activities The management of Excite Entertainment Ltd deigns financial reports with the help of marginal and apportion methods of cost accounting. Both the methods have create positive and negative impact. The marginal costing method id beneficial because it has the feature of controlling the cost by dividing the cost into fixed and variable costs. This method of costing create negative impact because it becomes unrealistic in the case of high fluctuation of production. The absorption costing is important for the preparation of income statements because it include both the cost and the unit cost. This method is beneficial for the smaller organisations so those firm which has lower capital they can also use this method. Rather than it, the disadvantage of this method is that it make hard the calculation cost volume profit analysis. The Excite Entertainment Ltd., the management of the company can use the absorption costing method because it is beneficial and suitable for this organisation so that they can easily 7
monitor the cost and the unit cost(Tappura and et. al., 2015). This method is also beneficial for small organisation so they can also implement it for preparing income statement. TASK 3 Explanation of the advantages and disadvantages of different types planning tools Budget It refers to a financial plan for a specific time period such as one year. It also consist planned sales volumes and revenues, resources quantities, costs and expenses, assets, liabilities and cash flows etc. according to K. Amjaroen, Budget refers to a predetermined statements of managerial policy during the given period which offers a standard comparison with the outputs actually achieved(van Helden and Uddin, 2016). In Excite Entertainment Ltd., the management of the company create and develop budget to determine the financial performance of a company in a predetermined period of time like one year. There are different types of budget that can be used by the management department of this company. They are as following: Sales budget- It indicates to a system which help in standard of goods and services that a firm need to mercantilism in particular sector in particular time period and evaluate to gain cost and fund from them in from of profit margins. In Excite Entertainment, this budget consists the sales in terms of units and the calculated income from these sales. Without the help of sales budget, this organisation cannot monitor process and will not make improvement in the process. Sales budget can be an idea and system that help the organisation in the production of the goods and trading of them in a particular time period. Advantages- Sales budgets are important and essential for the allocation and distribution of resources to various products, sales territories so that they can concreting the prediction sales. It is useful for framing sales systems so the organisation can achieve its sales target. It helps in managing expenses and making them in under control so that the aims of net profit can be achieved by the firm. Disadvantages- Sales budgets cannot efficiently articulation the future ways of events. It is time consuming process and not easily adopted by the employees of the company. Production budget- It refers to a budget which compute the number of units of products that are produced and traced from a collection of the sales prediction. In Excite Entertainment Ltd., 8
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production budget indicates to a financial plan that consist various units which are manufacture in a specific time period(Bobryshev and et. al., 2015). In this organisation, it is armoured by the senior so that they can analysethat how much units must be produced according to the future requirement. With th help of this financial plan, the management can gather information about the manufacturing units and producing units which are needed to fulfil the consumers desires and demands. Advantages- It is beneficial for minimizing manufacturing cost fro managing production units to monitor inventory. This budget is useful for devising act of raw material, finished good stock and work in progress. Disadvantages- In production budget, there are lack of flexibility when the management of the company organise production process then there are numerous covariants that are changed rapidly(GunarathneandLee,2015).ItisadecomposableprocessbecauseinExcite Entertainment Ltd., when the mangers participated in it then they analyse several manufacturing units. Cash Flow budget- It indicates to the calculation of all cash and fund expenditures that are expected to generate during a specific time period. This approximation can be made monthly, quarterly, annually and others or can consist nonfarm income, financial loss and farm items. Advantages- This budget is beneficial for the firm and help in determining the cash weather it is maintained and where it used in numerous activities. Disadvantages- It is a time taking process and there are lack of flexibility because this process consist commercial the budget digits and dispense it to the organisation's management department. Budget variances- It refers to the deviation between the monetary fund and baseline amount of disbursement or revenue and the actual amount. In Excite Entertainment Ltd., it indicates to the to a standard that is applied by the management to specify thevariance between assuming and actual figures for a particular accounting class. Within organisations, these kind of variances generates cause of forecasters because they are incapable to monitor the upcoming costs and revenue with entire accuracy. Importance of Budget variance- Budget variance is important because it help in managing budgets by controlling budgeted and actual costs. In Excite Entertainment Ltd., it is beneficial because if the material are analysed an monitored than they are essential for identifying to 9
determine the reason(Hopper and Bui, 2016). With the help of it, financial mangers can asked to program mangers in context of explaining substantial variances and provide solutions. Use of various planning tools and their application to design and forecast budgets Budgetcontrolisusefulbecauseithelpinprovidingaactualconditionofan organisation. In Excite Entertainment Ltd. It help in designing and formulating future financial performance and objectives which are analysed through past budgets(Kaplan and Atkinson, 2015). This type of control help the firm in analysing the result and financial place for same future fundamental measure. In this organisation, sales budget can be used by the management to hold and determine the sales units of the products and services which are developed by the firm. Production budget is useful for the company because it help theproduction department to produce required goods and services ina particular time. These all planning tools are essential for the organisation because they are important for generating profit and help in maintaining a monetary position in combative environment. Evaluation of planning tools for accounting respond in context of solving financial issues Planning is beneficial for formulating action plan for the future to support good textured running of the operations of the organisation. In Excite Entertainment Ltd., the firm faced several issues due to different unexpected situations. In this organisation, the management of the company can applied various planning tools like sales budget, cash flow and production budget etc. to overcome different awaited problems in context of improving and increasing the profitability and productivity by solving and reducing conflicts. TASK 4 Compare how organisations and adapting management accounting systems to respond the financial issues The management accounting system is beneficial and useful fro solving the various kind ofproblemsandissuesrelatedtofinanceandfund.InExciteEntertainmentLtd.,the management of the company can use accounting system according to the issues and problem (Klychova and et. al., 2015). The project report of financial conflicts of Excite Entertainment Ltd. is minimized and resolved which is defined as following: Calculation of contribution per unit Selling price per unit40 10
Less-Variable cost per unit10 Contribution30 Interpretation- On the basis of defined information and calculation, it can be monitored that organisation's selling price per unit is of £40 which is deducted by variable cost per unit to calculate the contribution per unit of 30. Calculation of break even point- Fixed cost/Contribution per unit 120000/30=4000 (unit) Interpretation- From the above calculation it can be determined that break even point is calculated by dividing fixed cost (120000) by making contribution per unit (30). Thus, the break even point is of 4000 (units). Calculation of cost volume profit analysis- Fixed cost+desirable profit/ Contribution (120000+60000)/30= 6000 (units) Interpretation- Fromthe above information according this solved financial problem, cost volume profit analysis can be calculated by dividing addition of fixed and desirable profit from the contribution. The CVP is of 6000 units. Profit at the sales of 4000 units- Sales (4000*40) Less-Variable cost (4000*10) Contribution Less-Fixed cost Profit/ loss 160000 40000 120000 120000 0 Interpretation- On the basis of above information, it can be determined that if the firm sells 4000 unit then they will unable to earn profit. According to it, the loss will be zero. Profit at the sales of 6000 units- Sales (6000*40) Less-Variable cost (6000*10) 240000 60000 11
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Contribution Less-Fixed cost Profit 180000 120000 60000 Interpretation-For the above calculation, it can be monitored that the firm has to sell 6000 units to earn the profit of £60000. Advice- According to the solved numerical, the organisation should sell the 6000 units to achieve their desirable target of profit. It is because if they sell 4000 units then the firm does not gain any profit margins and loss(Nielsen, Mitchell and Nørreklit, 2015). Rather then it, if the firm sell 6000 units then they can be capable to earn profit of £60000 that is defined in the above mentioned numerical. Management accounting is also important for resolving financial problems that are generated cause of lack of fund. The comparison between two organisations are mentioned below that states about the role of management accounting systems in cope up the financial issues and problems. Financial problems-It refers to the deficiency of fund fro running and operating the business activities, functions and operations. In Excite Entertainment Ltd., various activities of the company affected by it in negative manner. There are several issues related to finance that can b faced by the companies, come of them are as following: Spending more than income- whenthe organisation permanently make expenses on organisation and earn less than after a time period, there are generating great financial issues in the company. Lack of fund- It is an another issue and it arise in an organisation when the firm has less or limited fund cause of its different operations get perplexed. Management accounting methods- There are numerous accounting methods that can be use by the management of the company for solving and minimizing the financial issues, some of them are mentioned as below: Benchmarking- It refers to the process of making comparison in business process and performance. It isa type of model which is related to examination process, plans an polices in context of another firm. 12
Financial governance- It indicates to the way and process by which the organisation manage and monitor financial and monetary information(Nitzl, 2016). Key performance indicator- It refers to a method and system by which the company ways to attain the objective in effective and efficient manner. In Excite Entertainment Ltd., the management of the company can use it to evaluate the success to achieve its set objectives and goals. BasisExcite Entertainment LtdAbbott mead Vickers BBDO Financial issuesTherearevariousfinancial problemsrelatedtolackof fundthatarefacingbythe organisation to monitor various activities.Causeofthis problem,therevenueofthe firmisreducingincessantly. According to this issue, it can me analysed that the polices and plans that are related to the arrangement of events are not much effective. Themanagementdepartment ofthisorganisationalso suffering from the problem of lack of fund. The reason of this problemisthatthefirm spending more money on its businessoperationsand activities more than its earning (Otley, 2016). Ways to solve these issuesAfteranalysingtheabove mentionedproblems,these issuescanbeminimiseand solvebyusingeffective managementaccounting techniques like benchmarking. Itismethodwhichhelpin makecomparisoninthe processandpolicesofthe business environment and then providesolutiontoresolve In this condition, the firm can useKPI(Keyperformance indicator)becauseitis beneficial for the firm and help inmanglingthebusiness activities and operation which are essential and important. By following it, the management of the company can earn more revenue and help the firm to overcomefromthisissues 13
thesekindofissues.By implementing this method the firm can resolve this problems. (Quattrone, 2016). CONCLUSION On the basis of above information, it can be conclude that management accounting is an essential tool and play an important role in an organisation by providing its help so that it can attain its set objectives in set period of time. It involved different accounting system that are beneficial or useful for the proper management of the accounting and financial information of a company. There are different type of financial documents like budget report, execution report etc. which help in the management of the accounting systems of the firm. Various financial issues are defined in the report and various conceptualization such as KPI, benchmarking etc. are defined to minimize these kind of issues. 14
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REFERENCES Books & Journals Bobryshev, A. N. and et. al., 2015. Management accounting in Russia: problems of theoretical study and practical application in the economic crisis.Journal of Advanced Research in Law and Economics.6(3 (13)). p.511. Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control.Accounting, organizations and society.47.pp.1-13. Gunarathne, N. and Lee, K. H., 2015. Environmental Management Accounting (EMA) for environmentalmanagementandorganizationalchange:Aneco-controlapproach. Journal of Accounting & Organizational Change.11(3). pp.362-383. Hopper, T. and Bui, B., 2016. Has management accounting research been critical?.Management Accounting Research.31.pp.10-30. Kaplan, R. S. and Atkinson, A. A., 2015.Advanced management accounting. PHI Learning. 15